Eleven Biotherapeutics Inc (NASDAQ:EBIO)’s stock surged by more than 230% in the first hours of trading today, which offset the stock’s slump from the last couple of months. Eleven Biotherapeutics has revealed that it started administering EBI-005 to its first patients in a late-stage study aimed to discover the drug’s efficacy in treating moderate to severe allergic conjunctivitis. The stock later retracted and currently trades at around 90% in green. However, Eleven Biotherapeutics is a micro-cap stock, which is prone to large price fluctuations. Nevertheless, let’s take a closer look at the news and see the hedge fund sentiment surrounding the stock to understand its potential as an investment opportunity.
The patient dosing represents an important part of Eleven Biotherapeutics’ Phase 3 study of EBI-005 and the company expects to present top-line data in the first three months of the next year. EBI-005 is the most advanced product candidate of Eleven Biotherapeutics and represents a topically-administered receptor blocker in development as a protein therapeutic for inflammatory diseases of the eye. In May, the company reported weak results from the Phase 3 pivotal study, which did not meet the primary endpoints and showed no statistical difference between EBI-005 and vehicle control. On the back of pivotal study results, the stock slumped by 75% and despite today’s jump, the stock is still down by 51% year-to-date.
Due to its small size, Eleven Biotherapeutics does not enjoy a lot of popularity from smart money, as only eight funds from our database held long positions at the end of March. We consider hedge fund sentiment an important metric, because this group of investors spends a lot of resources to identify profitable opportunities in the markets. Through extensive research, we determined that hedge funds’ best ideas are represented by their small-cap picks. Based on our studies, we determined that a portfolio of 15 most popular small-cap stocks among hedge funds can beat the market by double digits annually and since we started tracking these stocks in real time, in August 2012, this approach has provided gains of over 123%, having outperformed the S&P 500 ETF (SPY) by around 65 percentage points (read more details here). Considering these, we’re going to take a glance at the new hedge fund activity regarding Eleven Biotherapeutics Inc.
How have hedgies been trading Eleven Biotherapeutics Inc (NASDAQ:EBIO)?
With this in mind, let’s take a closer look at latest hedge fund moves surrounding Eleven Biotherapeutics. As stated earlier, a total of eight funds from our database held $11.97 million worth of stock, which represented around 11.9% of the company’s outstanding stock at the end of March. However, there was a small outflow of capital from the stock as there was a 27.31% decrease in hedge fund holdings by the end of the first quarter.
Chuck Royce’s Royce & Associates dumped all of its 388,600 shares during the second quarter, a position it acquired in the first quarter. Kevin Kotler’s Broadfin Capital owned the largest Eleven Biotherapeutics Inc (NASDAQ:EBIO) stake at the end of March, with 966,057 shares worth about $8.62 million. Malcolm Fairbairn’s Ascend Capital also acquired 210,000 shares during the first quarter. Other funds with long positions at the end of March include Jeremy Green’s Redmile Group and Steve Cohen’s Point72 Asset Management.
With biotech stocks gaining momentum and Eleven Biotherapeutics Inc (NASDAQ:EBIO) jumping on the back of the news about the launch of EBI-005 dosing, we consider that the stock has more room to grow, especially if it obtains positive results from the study. However, investing in clinical-stage companies is rather risky, but can deliver substantial returns as can be seen by today’s move.
Disclosure: None
